The Obama administration is urging Congress to extend a tax provision allowing troubled homeowners that complete a short sale — or benefit from a principal reduction — to avoid paying taxes on the discharged amount of their loan balance.

The current tax exclusion for discharges of "qualified principal residential indebtedness" (QRPI)has been in effect since 2007, but is due to expire at the end of 2012. Without the QPRI exclusion, the amount of the discharged mortgage debt would by counted as income for tax purposes.

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